Investors in Australian shares funds are finally having their patience rewarded with some fund managers producing their best returns since the onset of the global financial crisis. It's early days, but there are signs the worst may be over for Australian shares with the market producing a total return - which includes growth in share prices and dividends - of just above 14 per cent for the year to September 30.

Over that time, the Perpetual Wholesale Ethical SRI Fund has returned more than 29 per cent. The Aberdeen Financials Fund has returned just more than 26 per cent and the Antares Dividend Builder Fund has returned almost 26 per cent.

The funds that have done best tend to have biases in their portfolios to the big four banks and Telstra. They also tend to hold other stocks that pay good income - such as utilities and real estate investment trusts - which have also had their share prices lifted higher by cautious investors looking for tax-effective income. They are tax-effective because the dividends of these high-yielding shares come with high levels of franking, which makes the dividends worth more in the hands of shareholders.

Healthcare sector shares such as CSL, Ramsay Healthcare and Ansell, despite their low yields, have also done well for the funds as investors buy these companies for their sustainable profits when profit growth for most listed companies is hard to come by.

A further feature of the better-performing funds is being underweight to the mining sector, which has not performed well over the year because of slowing Chinese economic growth and lower commodities prices. Some of the funds that have performed well do not invest in mining stocks at all. For example, the fifth-best performer for the year, Investors Mutual Industrial Share Fund, with a return of almost 25 per cent, has an investment mandate to invest only in ''industrial'' shares, which excludes the resources and energy sectors. And it should be no surprise, given that big banks have performed well, that the Aberdeen Financials Fund, which invests primarily in banks and insurers, has produced an outstanding return.

TOP HONOURS

Perpetual's Wholesale Ethical SRI Fund, is also a very good long-term performer. While the global financial crisis resulted in a five-year average annualised return to September 30, 2012, of only 2.22 per cent, the 10-year average annual return is 12.5 per cent.

Socially responsible investing (SRI) is where the fund uses research from external specialists to analyse socially responsible practices of companies so that the process is independent of the views of those running the fund.

The portfolio manager of the Ethical SRI fund, Nathan Parkin, says: ''The idea of the fund is to provide investors with capital and income returns without compromising their personal ethical considerations.

''We start with Perpetual's quality universe where we look at management, debt and recurring earnings,'' he says.

The process lends itself to businesses that pay a reasonable level of profits as dividends, he says. There are about 250 companies that make it through the investment-quality screens and of those, about 100 are knocked out by the ethical screening. Of the 150 remaining, about 50 companies are held in the fund.

BHP Billiton and Woolworths cannot be held in the fund because they do not pass the ethical and SRI screening processes. BHP Billiton fails because of uranium mining and Woolworths is excluded because it is a big owner of poker machines and also because of its retail liquor business.

The biggest holdings in the fund are the big four banks, followed by business software company Reckon Limited and Telstra. Even among the struggling media sector, the fund has done well with Prime Media.

Health insurer NIB Health Care is one of the fund's larger holdings that has performed well. It is a well-managed business, Parkin says.

NIB Health Care recently bought New Zealand's second-largest health insurer, Tower Medical Insurance. The fund's portfolio is expected to pay dividends with a combined franking level of more than 85 per cent over the next 12 months.

''I think the portfolio is relatively well positioned given the tough economic environment,'' Parkin says. ''We have been able to find businesses that are still able to grow in tough conditions,'' he says.

TOP OF TABLE

Aberdeen Financials Fund has a 10-year average annualised return of 8.6 per cent. It has benefited from the strong performance of the financial sector over that time. About 75 per cent of the fund is invested in just three companies - Commonwealth Bank, ANZ and Westpac. The fund holds only seven stocks, including the ASX Group and the wealth-management company, IOOF Holdings.

The head of Australian equities at Aberdeen Asset Management, Rob Penaloza, says NAB is not held in the portfolio because of a lack of clarity concerning the bank's strategy. The bank recently reported a fall in profits because of its poorly-performing British banking business.

Aberdeen seeks to identify and invest in good-quality Australian-listed companies through first-hand company visits. Quality is chiefly an evaluation of a company's management, balance sheet and business model. Only those companies that pass Aberdeen's quality screen are assessed for value.

''It is very much a sector fund,'' Penaloza says. ''It is about trying to find the best-quality companies at the best price within the financials sector, given the constraint that we can only predominantly invest in banks and insurance companies.''

Penaloza says the 26 per cent return over the year is unlikely to be repeated next year. ''Our outlook is cautious,'' he says. A more realistic return in this market is earnings growth plus dividend yield, or a total return of about 10 per cent, he says. He expects the financials sector to continue to perform well. ''People are happy to pay a bit of a premium if they can get a steady income stream.'' The trend to seeking income from stocks like the big banks is likely to continue, he says.

STOCK PICKERS

The co-head of equities at Antares, Glenn Hart, says the Dividend Builder Fund is about long-term wealth creation. ''It is not about short-term trading or speculation,'' he says. The fund selects from companies whose shares are on dividend yields that put them among the best 25 per cent of dividend yielders on the market.

The investment management staff do not just buy high-yield shares, however. They look at the sustainability of dividends and a company's prospects for growing dividends. The fund holds shares in 16 companies with a good spread between industry sectors. Good performers for the fund, apart from the big banks and Telstra, include Australian Infrastructure Fund, which is a part-owner of airports and other assets and is under a takeover offer. The fund has also done well from APA Group, the old Australian Pipeline Trust, which pays out a lot of its earnings as income. APA owns and operates natural gas pipelines across Australia.

''We have also been able to avoid the disasters,'' Hart says. He says the theme that has dominated the market - favouring yield shares - is likely to continue. There is simply not the yield opportunities outside of shares, such as term deposits, there used to be, he says.

Hugh Giddy, a senior portfolio manager at Investors Mutual, whose Industrial Share Fund returned almost 25 per cent, says the fund has benefited from the flight to companies with sustainable cash flows and high dividends.

The big banks and Telstra feature among the biggest holdings. But other stocks, such as IAG, Wesfarmers, CSL and Amcor, have also done well for the fund after many posted strong results for 2012. ''The success has come partly from being defensive and yield, but also from stock picking,'' he says. And not being in resources has helped, he says.

''Hopefully, it will continue to be a stock-pickers market because that is the kind of market we like,'' Giddy says.

How to pick a winner

When assessing a fund manager, it is the long-term numbers that really matter. Over the past year, it has been the higher-yielding ''defensive'' stocks that have done the best.

That's because cautious investors have been chasing yield when interest rates paid on term deposits have been falling. But if global economic conditions were to improve, ''cyclical'' stocks, those whose fortunes are more closely tied to the economic cycle, would do better.

If the economic environment were to change to one that made it easier for companies to grow their earnings, the funds stacked with high-yielding stocks would not do as well. That's why picking a fund on the basis of a 12-month return is too short a period.

Anyone investing in shares, or in managed funds that are investing in shares, should be prepared to invest for a minimum of five years. A fund's performance should be assessed over the long term, through several investment cycles.

The co-head of funds at Morningstar, Tim Murphy, says a feature of the better performers during the past year is that they are not ''whole of market funds''. Investors are buying ''concentrated risks'', he says. ''They are good funds, but in terms of one of these funds being your only equity allocation, it would not be the smartest idea.''

The best publicly available information on managed funds can be found at morningstar.com.au.